Commentary: Federal Reserve deserves closer scrutiny

Breaking news: When it came to the collapse of the bubble that touched off the 2008 meltdown of the U.S. economy, the Federal Reserve was a placid herd of clueless blockheads. Less than two years before the housing market turned kamikaze, Fed officials were gathering around conference rooms congratulating one another on what a genius job they were doing managing the economy.

“We are unlikely to see growth being derailed by the housing market,” Ben Bernanke assured the rest of the Open Market Committee, the Fed’s major policy-making group, adding that the nation could expect “a relatively soft landing in housing.” Not that anybody needed much convincing. “We just don’t see troubling signs yet of collateral damage [from housing prices] and we are not expecting much,” declared Timothy Geithner, then head of the Fed’s New York regional bank.

And Janet L. Yellen, boss at the Fed bank in San Francisco, was so pleased with the overall economic picture that she gushed to outgoing Fed chairman Alan Greenspan that “the situation you’re handing off to your successor is a lot like a tennis racket with a gigantic sweet spot.”

All these remarkably unperceptive remarks were made at Open Market Committee meetings in 2006. The reason they’re breaking news more than five years later is that the Fed has only just now made minutes of the meetings public. It’s not like they were lost or anything; the Fed always keeps records of its meetings secret for five years before letting anybody see them.

You might think that when the agency that controls the entire money supply of the United States — an agency that tosses trillions of dollars around like they were rolls of nickels — routinely engages in such pathological secrecy, there would be a public outcry, especially in a Washington press corps that likes to brag about its role as watchdog of American democracy.

Sadly, the truth is quite the opposite. When it comes to the Fed, the press plays more like one of those toy poodles that sits in your lap. Just last week, Washington Post columnist Dana Milbank, who regularly entertains readers with his astounding ability to insert his head further up the digestive tract of the inside-the-beltway establishment than anyone ever thought possible, reached new heights in a paean to the Fed. “Bernanke’s Fed has been a model of good government: apolitical, efficient, brutally effective — and transparent,” Milbank wrote.

If, by transparent, Milbank meant “somewhat more open to public inspection than the space-alien cemetery in Area 51,” he has an arguable case. Otherwise, he’s suffering from journalistic dementia. The Fed has been the most compulsively furtive part of the U.S. government since the plans for it were hatched during a secret 1910 meeting of powerful bankers and Taft administration officials on a private island. (They blandly told the press they were hunting ducks.)

Practically nobody knows what the Fed is up to, ever. The same laws that make it independent of the rest of the government make it largely unaccountable. Its policy-making meetings are closed and most of its significant documents are exempt from the Freedom of Information Act.

“The Fed is so inscrutable that big banks employ PhDs whose entire lives are dedicated to trying to figure out what the Fed is doing,” says Johns Hopkins economist Steve H. Hanke, himself a venerable reader of Fed tea leaves. “The Fed exercises incredible control over what is written about. Most of the scholarly work about the Fed is done by people who work for the Fed, or used to work for the Fed, or have a grant from the Fed, writing in Fed journals.”

Regrettably, that’s not hyperbole. One academic study found that three-quarters of the articles on the Fed written by economists during 2002 were either authored by Fed staff economists or published by Fed-sponsored publications. Independent economists are mercilessly frozen out. Security guards at Fed headquarters in Washington even got a BOLO alert — including his photo — on Karl Brunner, one of the most prestigious monetarist economists of the 20th century, warning that he was never allowed to enter the building.

Bernanke has fought like a tiger to keep the Fed shielded from the prying eyes of the American peasantry. When Bloomberg News and Fox News filed Freedom of Information Act requests to find out exactly how much money the Fed spent on bailouts after the 2008 financial meltdown and to whom it went, Bernanke stonewalled them for two years before a court order forced him to comply. He also battled ferociously against a proposal for an audit of the Fed proposed by a couple of strange ideological bedfellows — socialist Sen. Bernie Sanders and libertarian GOP Rep. Ron Paul — united by their disgust at the Fed’s stealth policy-making. When the Occupy movement and the tea party agree on something, maybe the rest of us ought to pay attention.